De Havilland Case Report

Statement of Issues

The parts costs that constituted 60-65% of de Havilland’s total manufacturing costs was the main problem that the company sought to solve. That was why they requested an across-the-board 25 discount on the price of parts supplied by their vendors; which was difficult to achieve. Now, they are seeking avenues to get vendors to commit to a long term fixed rate contract for parts.

Another problem is the certainty or the lack thereof, as to whether Marton Inc. Enterprises can follow through their quoted price during contract execution or if they just bidded low to win the contract. If the latter is the case, then Kim Tomar may have just contracted a work to a vendor who will eventually cost the company more money back-end. The problem here is to determine the realistic nature of the figures submitted to Marton Enterprises.

Criteria

In this case, a good decision will result in Kim Tomar being able commit vendors to a long-term firm, fixed rates for their parts so that frequent price monitoring and negotiations will be eliminated. Another good criterion will also be one that allows de Havilland to streamline its vendor base to permit them to capture economies of scale and, hopefully pass the cost reductions to de Havilland.

Analysis

One possible BATNA for de Havilland, other than merely requesting Marton to further lower their costs, or switching to another vendor is to explore the possibility of incorporating other product mixes and /or product lines into Martos’ proposal offer. That way, de Havilland achieves more cost savings on a bigger package. For instance if Martos Enterprise submitted quote of $75,000 for only flap shrouds, de Havilland can propose that they throw in equipment bay doors in that quotes as well. For Marton Enterprises, a possible BATNA can also be incorporating other product lines to the offer and negotiating better transportation, supply, support services and quality performance terms with de Havilland. For example...